Is Sec 270A efficient to replace Sec 271(1)(c)?
By K Senguttuvan, Subathra Manoharan (Originally published on Taxsutra)
It is not a new fact that Sec 270A and Sec 270AA has been inserted to the Income Tax Act thereby replacing Sec 271.
The motive behind bringing these new Sections into force was to reduce the litigation between the taxpayer and the revenue authorities, as tax authorities always levied the penalty whenever there was an addition or disallowance made by the AO. Thus, authorities used Sec 271 to levy penalty bluntly without application of mind, aggrieving the Assessee and pushing him to go to Court.
The authors have attempted to compare the provisions applicable till AY 2016-17 and applicable from AY 2017-18 as below:
| OLD PROVISION – Sec 271 (1)(c) | NEW PROVISION – Sec 270A |
| 271(1)(b) – Failed to comply with a notice u/s 115WD(2) or u/s 115WE(2) or 142(2) or u/s 143(2) – in addition to tax, if any, penalty of Rs.10000/- for each failure | Non-response to scrutiny notice; No provision u/s 270A to levy penalty |
| 271(1)(c) – has concealed the particulars of his income or furnished inaccurate particulars of such income – in addition to tax, if any, not less than but not exceeding three times of amount of tax sought to be evaded | Would fall within the cases of misreporting provided in Sec 270A (9) |
| Explanation 1 – Person failed to offer an explanation or such explanation found to be false or not able to substantiate or not able to prove such explanation is bona fide that all are disclosed – amount disallowed or added shall deemed to represent the income for the purpose of S 271(1)(c) | Would fall within the cases of misreporting provided in Sec 270A (9) – misrepresentation or suppression of facts. |
| Explanation 2 – Where the additions of income are made during the course of assessment of earlier AY’s on which no penalty has been imposed AND claims that income arose from such additions/dis-allowances as source of any receipt, deposit, outgoing or investment in any subsequent AY | There is no provision in the new section which provides for a situation like provided under Explanation 2. |
| Explanation 3 – a person fails to furnish return before issue of notice u/s 142/148, but furnishes after issue of notice, wherein the AO is satisfied that such person has taxable income, be deemed to have concealed particulars of income – whole amount of income assessed shall be deemed to represent the income for the purpose of S 271(1)(c) | Not directly present, however, Sec 276CC, provides for penalty in cases where return of income is not filed. |
| Explanation 4 – formula to arrive evaded tax amount | Same u/s 270A |
| Explanation 5 – for search initiated u/s 132 before 1st day of June 2007 | Not relevant |
| Explanation 5A –in the course of search u/s 132:
i. the assessee claims the Cash/ Bullion/ Jewellery/ other valuable articles are acquired from his PY income. ii. the assessee claims any income as represented in his income of PY 1. where the assessee has filed return but not reported such income or, 2. where the assessee has not filed return before and after the expiry of the due date |
Situation ii (a) will fall under misreporting; situation ii (b) will fall under Sec 276cc. |
| Explanation 6 – any adjustment made under proviso to S 143(1)(a), this section will not apply | If the Income assessed u/s 143(3)/147 is greater than the income determined in the return processed u/s 143(1)(a), the difference will be covered by “Under Reporting” in Sec 270A. |
| Explanation 7any adjustment consequent TP assessment be deemed to represent the concealed income or inaccurately furnished particulars:
1. Penalty imposable by virtue of Explanation 2. Penalty proceedings initiated u/s 271(1)(c) consequent to addition/ disallowance in computing total income shall deemed to constitute satisfaction of AO. 3. Omitted 4. AO is satisfied that the profits of a registered firm have been distributed otherwise than in accordance with the shares of the Partner and that partner returned his income below the real amount, then the AO will direct the partner to pay tax along with 1. 5 times of additional tax amount as penalty: 1. Irrelevant 2. Irrelevant 3. Rescinding wef 1st Apr 2017 |
Concealed income and Inaccurately furnished particulars will be covered by Misreporting under Sec 270A.
Point 2 – Once an order for penalty has been issued there is no opportunity given to the assessee to explain himself to the AO. Point 4 will fall under misreporting provided in Sec 270A (9) |